Cathay cuts its growth forecast

WEAKNESS:Taiwan lags behind the global economic recovery due to the growing amount of overseas production among its manufacturing firms, the company said

By Crystal Hsu / Staff reporter

Cathay Financial Holding Co (國泰金控) yesterday cut its forecast for the nation’s GDP growth to 1.82 percent this year, from an earlier forecast of 2.27 percent in September, as exports and private consumption fared weaker than expected.

The downward adjustment came a day before the Directorate-General of Budget, Accounting and Statistics is due to update its own forecast, currently standing at 2.31 percent.

“We had warned about the cut and decided to take a move after the economy failed to show improvement,” said Achilles Chen (陳欽奇), assistant manager of economic research at the nation’s largest financial services provider by assets.

Exports, which account for more than 70 percent of GDP, remained in contraction mode last month, posting a mere 1 percent increase in the first 10 months compared with the same period last year.

Export orders, a reliable indicator of actual exports one to three months ahead, declined 0.2 percent between January and last month, though they expanded 3.7 percent last month, Cathay Financial said.

External demand is excpected to improve further this quarter as the economic recovery in the US, Europe and China remains on track, but the pace is not going to be strong enough for Taiwan to avert a GDP revision, Cathay Financial said.

At home, commercial trade rose 1.8 percent to a record high of NT$1.24 trillion (US$4183 billion) last month, but the cumulative value grew just 0.2 percent from the previous year, Cathay Financial said.

The insignificant growth reflected soft consumer confidence, though the situation is showing a modest pickup in the current quarter, Chen said.

Overall, Taiwan lags behind the global economic recovery due to the growing amount of overseas production among its manufacturing firms, Cathay Financial said.

As more firms manufacture goods overseas — from 12.4 percent in January 2000 to 52.9 percent last month — the gap between export orders and exports widen, and their contribution to domestic GDP declines, Cathay Financial said.

The company urged the government to encourage more Taiwanese firms abroad to return home and invest by offering more incentives.

“Doing so can effectively boost employment and domestic demand, making Taiwan less dependent on external demand and thus less vulnerable to external shocks,” Cathay Financial said.

Talks of free-trade agreements with other countries are also positive in helping to enhance the competitiveness of local firms on the world stage, as the world’s economic blocs increasingly integrate, Cathay Financial said.